Rules for the Formation of Securities Companies with Foreign Shareholders
(Promulgated by Order No. 8 of the China Securities Regulatory Commission on June 1, 2002, and amended according to the Decision of the China Securities Regulatory Commission on Amending the Rules for the Formation of Securities Companies with Foreign Shareholder on December 28, 2007, and amended according to the Decision of the China Securities Regulatory Commission on Amending the Rules for the Formation of Securities Companies with Foreign Shareholder on October 11, 2012)
Article 1 In order to meet the demands of opening up the securities market, to strengthen and improve the supervision and administration of securities companies with foreign shareholders and to define the conditions and procedures for the formation of securities companies with foreign shareholders, these Rules have been formulated according to the relevant provisions of the Company Law and the Securities Law.
Article 2 The “securities companies with foreign shareholders” as mentioned in these Rules refers to:
1. The securities companies that are jointly contributed and established by the foreign and domestic shareholders; and
2. The securities companies that are changed from domestic-funded securities companies through the acceptance or purchase of shares by foreign shareholders.
Article 3 The China Securities Regulatory Commission (hereinafter referred to as the CSRC) shall be responsible for the examination and approval, supervision and administration of securities companies with foreign shareholders.
Article 4 The name, form of organization, registered capital, establishment and duties of the departments of a securities company with foreign shareholders shall comply with the relevant provisions of the Company Law, the Securities Law and the CSRC.
Article 5 A securities companies with foreign shareholders may engage in the following businesses:
1. Underwriting and recommendation of stocks (including RMB common stocks and foreign capital stocks) and bonds (including government bonds and corporate bonds);
2. Brokerage of foreign capital stocks;
3. Brokerage and proprietary trading of bonds (including government bonds and corporate bonds); and
4. Other businesses approved by the CSRC.
Article 6 A securities companies with foreign shareholders shall meet the following conditions:
1. The registered capital is in compliance with the provisions of the Securities Law;
2. The shareholders have the qualifications as provided for by these Rules, and the proportion and form of their capital contribution comply with the provisions of these Rules;
3. The numbers of persons who have obtained the qualification for securities dealing according to the provisions of the CSRC should be 30 or more, and there are necessary professionals for accounting, legal affairs, and computing;
4. Having sound internal management, risk control, as well as the separated management system of underwriting, brokerage and proprietary trading in the aspects of institution, personnel, information and business execution, etc., and having an appropriate internal control technical system;
5. Having the business premises that meet the requirements and the qualified business facilities; and
6. Other prudential conditions as provided for by the CSRC.
Article 7 The foreign shareholders of a securities company with foreign shareholders shall meet the following conditions:
1. Their home countries or regions have a sound legal and regulatory system of securities, and the securities regulatory bodies have signed the memorandum of understanding on securities regulation and kept an effective cooperative relation with the CSRC or the institution accepted by the CSRC;
2. They have been lawfully formed in their home countries or regions, at least one of them is an institution that has the lawful financial business qualification; and they shall not transfer their equities in the foreign-shared securities company within three years after the equity participation;
3. They have engaged in the financial business for five years or more, and haven’t been given major punishment by the securities regulatory body, the administrative or justice department of their respective home countries or regions in last three years;
4. All of their financial indicators in last three years are in compliance with the legal provisions of their respective home countries or regions and the requirements of their respective securities regulatory bodies;
5.They have a sound internal control system;
6. They have a good reputation and business performance; and
7. Other prudential conditions as provided for by the CSRC.
Article 8 The domestic shareholders of a securities company with foreign shareholders shall have the qualification requirements for the shareholders of securities companies as provided for by the CSRC.
Among the domestic shareholders of a securities company with foreign shareholders, at least one shall be a domestic-funded securities company. But the foreign-shared securities company changed from a domestic-funded securities company shall be an exception.
Article 9 The domestic shareholders may invest by cash or tangible goods that are necessary for the business operation. The foreign shareholders shall use freely exchangeable currencies to invest.
Article 10 The shareholding of foreign shareholders or the stake of foreign shareholders in a securities company with foreign shareholders shall not exceed 49% cumulatively (including direct shareholding and indirect control).
The shareholding or stake of one domestic-funded securities company at a minimum among domestic shareholders in a securities company with foreign shareholders shall not be lower than 49%.
After a domestic-funded securities company is changed into a securities company with foreign shareholders, the shareholding of one domestic shareholder at a minimum shall not be lower than 49%.
Article 11 The directors, supervisors and senior managers of a securities company with foreign shareholders shall have the qualification requirements as provided for by the CSRC.
Article 12 To apply for establishing a securities company with foreign shareholders, the representatives appointed by all the shareholders or the agents entrusted by them shall submit the following documents to the CSRC:
1. Application form jointly signed by the legal representatives or the authorized representatives of the domestic and foreign shareholders;
2. Contract for formation the securities company with foreign shareholders and the draft of the company’s bylaw;
3. Explanatory documents on the competence of principal senior managers to be appointed by the securities company with foreign shareholders;
4. Copies of business licenses, registration certificates, or securities business qualification certificates of the shareholders;
5. Audited financial statements of the foreign and domestic shareholders for the three years prior to the application;
6. Explanatory letters issued by the securities regulatory bodies of the home countries or regions of the foreign shareholders or the foreign institutions accepted by the CSRC on whether these shareholders have met the conditions as provided for in Items (2) up to (4) of Article 7 of these Rules;
7. Legal opinions issued by the law firms within the territory of China; and
8. Other documents required by the CSRC.
Article 13 The CSRC shall, according to the relevant laws, administrative regulations and these Rules, examine the application documents as provided for in the preceding article, make the decision on whether to approve the application within the stipulated time limit, and notify the applicant in written form. For those not approved, reasons shall be explained in written form.
Article 14 The shareholders shall contribute the capital in full amount or provide the cooperative conditions agreed upon, elect directors and supervisors, appoint senior officers, and apply to the administration for industry and commerce for registration of establishment and get the business license within six months from the day on which the CSRC issued the document of approval.
Article 15 The board chairman or the authorized representative of a securities company with foreign shareholders shall, within 15 workdays from the day on which the business license is granted, submit the following documents to the CSRC to apply for the License for Securities Business:
1. Copy of the business license;
2. The company’s bylaw;
3. Capital verification report produced by the accounting firm that is qualified for securities-related business within the territory of China;
4. Name list of the directors, supervisors, senior officers and principal business operators, and the copies of their post holding qualification certificates and their securities business qualification certificates;
5. Documents about the internal control system;
6. Explanatory documents about the business premises and business facilities; and
7. Other documents required by the CSRC.
Article 16 The CSRC shall, according to the relevant laws, administrative regulations and these Rules, examine the application documents as provided for in the preceding article, and shall make its decision within 15 workdays from the day on which the application documents meeting the requirements are received. For those meeting the conditions, the License for Securities Business shall be granted; for those not meeting the conditions, the license shall not be granted and reasons shall be explained in written form.
Article 17 A securities company with foreign shareholders that hasn’t obtained the License for Securities Business as granted by the CSRC may not start business or engage in the securities business.
Article 18 Where a domestic-funded securities company applies for changing into a securities company with foreign shareholders, the conditions as provided for in Article 6 of these Rules shall be met.
The foreign shareholders purchasing or holding shares of domestic-funded securities companies shall meet the conditions as provided for in Article 7 of these Rules, and the proportion of the purchased shares or the capital contribution thereof shall meet the provisions of Article 10 of these Rules.
Article 19 A domestic-funded securities company applying for changing itself into a securities company with foreign shareholders shall submit the following documents to the CSRC:
1. Application form signed by the legal representative;
2. Decision of the shareholders’ meeting on changing itself into a foreign-shared securities company;
3. Draft of company’s bylaw;
4. Share transfer or capital contribution agreements (share purchasing agreement);
5. Name list and resumes of the persons appointed by the foreign investors to take position in that securities company, and their corresponding business qualification certificates and position qualification certificates;
6. Copies of business licenses or registration certificates and securities business qualification certificates of the foreign shareholders;
7. Audited financial statements of the foreign shareholders for the three years prior to the application;
8. Explanatory letters issued by the securities regulatory bodies of the home countries or regions of the foreign shareholders or the foreign institutions accepted by the CSRC on whether these shareholders have met the conditions as provided for in Items (2) up to (4) of Article 7 of these Rules;
9. Plans for the business settlements that cannot be conducted by securities company with foreign shareholders according to law;
10. Legal opinions issued by the law firms within the territory of China; and
11. Other documents required by the CSRC.
Article 20 The CSRC shall, according to the relevant laws, administrative regulations and these Rules, examine the application documents proscribed by the preceding article, make the decision to approve or disapprove the application within the stipulated time limit, and notify the applicant in written form. For those not approved, the reasons shall be explained in written form.
Article 21 The securities companies that receive approvals for changes shall, within six months from the day when the CSRC issued the document of approval, handle the matters of shares transfer or capital increase, clean up the business that cannot be operated by securities company with foreign shareholders, and shall apply to the Administration for Industry and Commerce for the registration of business alteration and obtain the new business license by turning in the original one.
Article 22 A securities company that receives approvals for change shall, within 15 workdays from the day of the registration of change, submit the following documents to the CSRC and apply for a new License for Securities Business:
1. Duplicate copies of the business license;
2. The bylaw of the foreign-shared securities company;
3. The original license for securities business and its duplicate copies;
4. Capital verification report issued by the accounting firm resided in the territory of China and qualified for securities-related business;
5. Report on the business settlements that can’t be operated by foreign-shared securities companies according to law;
6. Legal opinions and verification report on the aforesaid business settlements issued by the law firm resided in the territory of China and the accounting firm qualified for securities-related businesses; and
7. Other documents required by the CSRC.
Article 23 The CSRC shall, according to the relevant laws, administrative regulations and these Rules, examine the application documents prescribed in the preceding article, and shall make the decision on whether to approve it within 15 workdays from the day when the application documents meeting the requirements are received. For those meeting the conditions, the new License for Securities Business shall be granted to them; and for those not meeting the conditions, no new license may be granted, and reasons shall be explained in written form.
Article 24 A securities company newly established or continuing to exist after the merger of foreign-shared securities companies or the merger of securities companies with foreign shareholders and domestic-funded securities companies shall meet the conditions for establishment of securities company with foreign shareholders prescribed in these Rules; its business scope, the proportion of the shares or equities held by foreign shareholders shall be in compliance with the provisions of these Rules.
Where there are foreign shareholders in a securities company established upon the split-up of a securities company with foreign shareholders, its business scope and the proportion of the shares or equities held by the foreign shareholders shall be in compliance with the provisions of these Rules.
Article 25 Foreign investors may legally hold the shares in a listed domestic-funded securities company through securities trading on a stock exchange or hold shares in a listed domestic-funded securities company with the approval of the CSRC by establishing a strategic partnership with the listed domestic-funded securities company, and the approved business scope of the listed domestic-funded securities company shall remain unchanged. The restriction that the shareholding of one domestic shareholder at a minimum shall not be lower than 49% shall not apply to the listed domestic-funded securities company provided that its controlling shareholder is a domestic shareholder.
Where a foreign investor holds 5% or more of the shares of a listed domestic-funded securities company through purchasing securities from the stock exchanges or holding shares jointly with others by entering agreements or any other arrangements, the investor shall comply with the conditions provided for in Article 7 of these Rules, and abide by Article 129 of the Securities Law.
The proportion of the shares of a listed domestic-funded securities company held (including both directly held and indirectly controlled) by a single foreign investor shall not be more than 20%; and the proportion of the shares of a listed domestic-funded securities company held (including both directly held and indirectly controlled) by all the foreign investors shall not be more than 25%.
Article 26 The application documents submitted to the CSRC and the materials reported to the CSRC according to these Rules shall be in Chinese. Where the documents and materials of the foreign shareholders and those issued by the securities regulatory bodies of their home countries or regions or the foreign institutions accepted by the CSRC are in foreign languages, the Chinese versions that are consistent with the original documents shall be attached.
Where the documents and materials submitted by the applicant fail to sufficiently explain the situation of the applicant, the CSRC may ask the applicant to make supplementary explanations.
Article 27 Where investors from Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Area hold shares in securities companies, these Rules shall apply mutatis mutandis, except as otherwise required by any state provisions.
Article 28 The establishment, alteration, termination, business activities, supervision and management of securities companies with foreign shareholders shall be governed by other relevant provisions of the CSRC if there is no such provisions in there Rules.
Article 29 These Rules shall come into force from July 1, 2002.